FINANCE: US Squashes Ant Financial’s MoneyGram Dream

Bottom line: The collapse of Ant Financial's
purchase of MoneyGram reflects growing resistance from a Trump
administration willing to mix business and politics in its
relationship with China.

Ant's purchase of MoneyGram sinks

In yet the latest sign that the Donald Trump administration intends
to take a hard line towards Chinese M&A, Washington has killed
a $1.2 billion deal that would have seen Alibaba-affiliated (NYSE:
BABA) Ant Financial purchase US money-transfer
specialist MoneyGram (Nasdaq: MGI). This
particular development isn't a huge surprise, since the deal was
first announced about a year ago and its closure deadline was
extended several times while the US hemmed and hawed on its
national security review.

The de facto veto is also just the latest move by a Trump
administration that has shown it won't let US companies in the
strategic tech and financial industries be acquired by Chinese
counterparts. But this particular veto is also noteworthy because
it's one of the largest so far involving a purely private sector
Chinese buyer. Up to now, nearly all the deals to be vetoed have
come from buyers with strong links to Beijing, either directly or
through government-supplied financing.

We'll return to the broader implications for this latest veto
shortly, but let's start with a quick review of this slightly
surprising ending to a story that has stretched on for quite a
while now. It began about a year ago when Ant made its offer for
MoneyGram as part of a global expansion plan. Ant is China's
largest privately owned fintech company, and its core asset
is Alipay, the wildly popular electronic payments
firm originally owned by Alibaba.

Attempting to stand on its own two legs following a spin-off from
its e-commerce parent, Ant has built up a number of businesses in
China's young private financial services sector, but had made
relatively little progress outside its home market. It was hoping
to change that with the MoneyGram move, which originally saw it
offer $880 million for the US company. An unexpected bidding war
briefly erupted with another US
company Euronet (Nasdaq: EEFT), before Ant upped
its original offer to seal the deal.

But now it seems like that move was all for naught, with word that
the deal was rejected by the Committee on Foreign
Investment in the United States (CFIUS), the US body that
reviews all cross-border purchases for national security
implications. (English article) This was the third time for CFIUS to
review the plan, after Ant revised its original offer twice to try
to mitigate the agency's concerns. At the heart of the matter was
CFIUS' concerns about privacy protection for MoneyGram's millions
of users.

A look at MoneyGram's statement seems to indicate that CFIUS didn't actually
veto the deal outright, but instead was continuing to indicate it
wasn't satisfied with Ant's assurances aimed at easing security
concerns. That led the pair to decide they would never be able to
satisfy the agency, leading them to drop their marriage.

From my perspective, CFIUS' concerns are probably unmerited, at
least in terms of sharing information with Beijing, since Ant is a
private company and isn't subject to Beijing's whims for its
offshore operations. But that said, Ant's home market is China, and
thus it might be hard for the company to refuse a request for
MoneyGram-based information from Beijing, even if that information
was related to its offshore business with no connection to
China.

Ominous Sign

This particular deal comes after the US has shot down a string of
other purchases under Trump. Most recently the administration
vetoed the purchase of Lattice
Semiconductor (Nasdaq: LSCC) by a Chinese buyer, but other
vetoes also date back from before Trump.

Some are almost certain to read politics into this latest deal,
noting that Trump has indicated he's willing to mix business with
politics in its relationship with China. In particular, he wants
China to put more pressure on North Korea to end its nuclear
program, and thus some might be saying he's using this kind of veto
to show China what might happen if it doesn't become more assertive
on that front.

I'm certainly not a Trump expert, but this kind of mixed approach
does appear to reflect his unorthodox style, even though China has
also always been a classic mixer of business and politics. All that
said, this particular veto looks increasingly like par for the
course, meaning we can probably expect to see a sharp slowdown or
even a halt to any major M&A of US financial and tech companies
by Chinese buyers over the next couple of years.